Why Hayek + social preference research supports welfare-state liberalism

A couple of days ago, Brandon Berg posted on Catallarchy a response to a common hypothetical:  what happens when a large percentage of a population becomes superfluous given much cheaper labor?  Berg’s posting was in response to Michael at Half Sigma, who raised the possibility that cheaper sources of labor would cause a segment of the population to become permanent unemployable at almost any wage, rendering them "economically worthless."  Michael and Brandon take this example to its logical conclusion by assuming that a class of "worker" exists which can beat *any* worker on price and management costs — in this case, robots.  But of course we need not imagine actual robots here, the analysis is equally useful if one simply imagines very large relative differences between groups of people in their expected wages and working conditions. 

This may seem like a bizarre science-fiction scenario, but of course it’s also a thought experiment for possible "halting states" of a globalized economy.  For example, progressives in the U.S. wonder whether it’s even possible to ensure that we can roughly match the supply of jobs (let alone well paying jobs) to the domestic demand among American workers, or whether additional technological advances (in communications, supply, energy efficiency, etc) will further decrease the "friction" that continues to make globalized workforces a difficult thing to manage for most companies.  Were that "friction" to lessen, it’s an open question as to whether we can count on there being a rough balance between labor demand and job supply.  Massive domestic unemployment, or at the very least drastic "underemployment" at low wages, may result.  The end result of such a scenario is a "third-world" economic structure here in the U.S. — a small population of wealthy property-and-company owners, and vast numbers of people who are chronically under- and unemployed, dependent for subsistence and survival.  Clearly, this is a problem of political economy most progressives would wish to avoid, or if not, to remedy.   

Not everyone agrees that such a situation is problematic, however — there is a strain of libertarian economics which seems to view such a situation as almost desirable if the economy is productive enough in aggregate.  For example, examine Brandon’s response to such a situation:

We live in a world of scarce resources and unlimited desires….But let’s suppose for the sake of argument that scarcity is eradicated. Robots make everything, including other robots. They perform all manner of services as well as or better than humans, and no feasible desire, however trivial, goes unfulfilled. There’s no work left to do except to maintain the robots, and a small minority will be sufficient to handle that. I don’t see the problem. A world without scarcity would, by definition, be a world so fantastically wealthy as to allow the productive minority to support the idle majority at virtually no cost.

Note that a welfare state would not be necessary to achieve this. With no scarcity to temper the benevolence of the wealthy, pure charity would be far beyond sufficient to provide for the needs of the rest.

I suspect this argument is deeply flawed, even though it seems to be fairly common in libertarian circles.  I see at least two flaws, although there may be more.

First, it ignores the role of social preferences in whether a small population of productive wealthy (or even non-productive wealthy) actually would be benevolent towards a large population of non-productive poor.  Even if we assume that the wealthy in our experiment are wealthy enough that even large outlays of pure charity have a negligible impact on their individual assets, we run into the problem that "altruistic" behavior doesn’t seem to be governed purely by asset availability. 

Indeed, the emerging subdiscipline of experimental economics has shown pretty conclusively that (1) most people in advanced industrial economies are much more generous (even to strangers in one-shot interactions) than rational choice theory would predict, but (2) most people are not unconditionally altruistic.  Instead, by far the most common type of preference measured in experiments (running the Ultimatum, Public Goods, and Dictator games) is "strong reciprocity."  In strong reciprocity, individuals are likely to cooperate (e.g., share the wealth, split a hypothetical payout, etc) when they believe the people with whom they interact will cooperate in return, and are likely to not just defect, but punish, those who do not (or have not in the past) cooperate in return.  Interestingly, the exact nature of the preferences, and how such preferences are distributed within a population, depends critically on the nature of the economy within which people participate.  Experiments among groups that participate in markets, whether advanced industrial economies or localized and primitive market structures, display a high level of "fairness" whenever subjects believe others will be fair in return or are "deserving."  Experiments among groups that do not participate in markets and are largely reliant on individual effort for subsistence display much more self-interested (i.e., "rational" in the parlance of microeconomics) behavior.  I’m summarizing a lot of literature very quickly here, so perhaps in future posts I’ll unpack this argument a bit.  In the meantime, Heinrich’s book is an excellent place to start, as is the work of Herbert Gintis, Samuel Bowles, and Ernst Fehr. 

What does this mean in terms of our thought experiment?  Brandon states that a welfare state "would not be necessary" to achieve redistribution from a small population of haves, to a large population of have-nots.  The experimental evidence, however, strongly suggests that whether Brandon is correct depends critically upon whether the "haves" can be made to see the "have nots" as "deserving cooperators" rather than free-loaders.  What’s more, the security of the "have nots" will only last as long as the rich feel "reciprocity" with the poor.  In the absence of economic roles which the poor can perform to demonstrate common cause and productive effort, it seems difficult to imagine that "pure charity" can be a stable long-term equilibrium, capable of sustaining a whole population.  My personal conclusion from this is that Brandon and others who deploy this argument are very likely to be wrong in practice.  The difference in public perception between "welfare" (which was commonly perceived as a haven for "freeloaders" in the U.S.) and Social Security (in which everyone reciprocates to everyone else, rich or poor) would seem to bear out this conclusion as well.

Second, even if we assume that the wealthy do "give big" and are unconditionally altruistic rather than simply strong reciprocators, we fall afoul of Hayek’s analysis of centrally planned economies.  For what is a "pure charity" economy other than a centralized economy based on gifting?  How are the small number of wealthy in this model to know how much each poor person needs, and when?  How are the wealthy donors to coordinate with each other to ensure that each poor individual receives needed help, but not a double share, while leaving others without help?  Obviously, a coordination mechanism is needed, and once we reach that point in the argument, we’ve fallen right into Hayek’s hands — from here, much of his analysis in "The Road to Serfdom" applies.  (see note 1 below)

In other words, a world without scarcity doesn’t make problems of planning and redistribution irrelevant.  A world without scarcity doesn’t make social preferences about cooperation, redistribution, punishment, and reciprocity irrelevant.  We don’t escape the problems of contemporary political economy simply by "ratcheting up" the general level of wealth. 

I see this as a core difference between "classical liberals" (e.g., libertarian believers in free-market dynamics over collective action), and "New Deal liberals" (e.g., progressives, modern liberals, those who believe in some type of "welfare state.").  The former want to see market mechanisms and economic growth as the solution to problems of political economy and fairness; the latter don’t see such problems going away no matter how much we produce and grow — such problems are solved only through cooperative, collective action and incentive structures which take into account the real social preferences that characterize us as individuals (rather than applying rational choice theory uncritically).

In other words, a well-constructed welfare state is a sociopolitical structure which creates incentives for an entire population to act as generous strong reciprocators with respect to their countrymen.  And the need for such a construct will be with us as long as major variability exists in the well-being of our fellow citizens, if we are to rely on more than just fantasies of "pure charity" and robot workers who will free us all from drudgery. 

(more soon on how such a stance can be factored into institutional design for a "well-constructured" welfare state)

Note 1:    (Those, in the comments to Brandon’s post, who mentioned Star Trek and "replicator technology" ending scarcity, should remember that the Federation is a quasi-military, somewhat authoritarian organization whose missions of "scientific discovery" are accomplished using heavily armed warships to enforce galactic "peace."  Hayek would have hated Roddenberry’s Federation, likely preferring to live among the decidedly market-oriented Ferengi.  :) 


18 Comments so far. Comments are closed.
  1. Buy fioricet.

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  2. LoneSnark, I’d take a look at George Bataille’s _Accursed Share, Vol 1_. It’s not scarcity to which modern economies accord, but luxury and excess. Even in the hypothetical world of no scarcity (which is kind of a ridiculous hypothetical, but whatever), value would be determined by social and semiotic codes that would still allow for conspicuous consumption and leisure (see Veblen’s work).

  3. LoneSnark,

    David, I don’t think you read down deep enough. There is only one (honestly) possible outcome: very high productivity, which doesn’t change any fundamental rules and should be expected to continue normally: people are wealthy but unemployment is low and innovation is heavily rewarded.

    The unlikely scenario, discussed later on, is when productivity reaches infinity. In this scenario you may be right, the individual is in danger, but as discussed above “a welfare state” would be useless. The whole of humanity would be fabulously cared for by a single charitable giver.

    What these facts do not answer is what people will do with all the wealth being generated for free? I suspect people would quickly get bored with Earth and fly off to explore the galaxy. If productivity is infinite then a single penny will buy a huge starship.

    But I must point out that it seems very unlikely that productivity could reach infinity, if only because infinity is rare in the physical world.

  4. David Airth,

    After reading all this I am wondering how conservatives would react to such a welfare world. The individualism conservatives celebrate so much would be gone. Conservatives insisted that it it from individuals that the initiative and innovations come, which are necessary to sustain the world. Conservatives would insisted that such welfare would be ruinous.

    The welfare world described here would lose, I believe, its drive and in time would stagnate and collapse. I don’t think that rich people alone would be enough to sustain it because rich people also tend to become complacent and lazy, losing their drive to maintain things (the British Disease).

    The world needs a churning to keep it going. Putting the majority in a welfare state as imagined here would remove a lot of that essential churning.

  5. Mark,

    That’s an interesting point, because of course in most of the published experiments, there is a distribution of behaviors — centered on relatively fair, but still strongly reciprocal, behavior. But there are very small numbers of folks that tend to act more in a classically altruistic manner, and given your hypothetical, that’s all it takes.

    I guess I kept pushing the point because I’m less interested in the exact mechanics of the hypotheticals than I am in what the hypotheticals teach us about realistic situations we face. To my mind, the experiments done on social preferences argue that there is a strong place in our society for economic mechanisms that are cooperative, rather than purely self-interested. Social Security is an excellent example — we all participate, we all benefit, and we collectively punish those who exploit or “game” that system.

    Classical “welfare,” on the other hand, is an example of a poorly designed distribution mechanism. It was amenable to easy invasion by free-riders, had few mechanisms that demonstrated the reciprocity of recipients and “donors” (i.e., non-welfare using taxpayers), and only benefitted a few.

  6. LoneSnark,

    “both of you simply assume that unconditional altruism automatically kicks in with the death of scarcity”
    I see your point now and failed to recognize it earlier. I fully recognize that the vast majority of humanity expects reciprosity, perhaps 99.9%. But like I said all it takes is one rich individual, among perhaps a billion people, to feel “unconditional altruism” such that they can “feed/clothe/house the whole of humanity.”

    You said it yourself, “experimental economics research that suggests that economic empathy is not typically unconditional among Americans.” The word I am intersted in is “typically”, which strongly implies that sometimes, more than never, Americans do show unconditional empathy. As stated above a system of infinite productive capacity only requires a single atypical individual to care for the whole of humanity.

  7. Mark,

    LoneSnark, thanks for the comments. Just a couple of points before I move on to other topics.

    (1) I think there’s something missing in your theory of how luxury goods “work” — your comment about people switching from BMW to Porsche based (hypothetically) on price and feature set is simply not the whole (or even most) of the story. Both brands also represent a specific set of “images” and have specific social connotations, appealing to different sub-segments of a market which has the disposable cash to purchase luxury goods. Those images are not really in “competition” with each other, so much as they represent alternatives that buyers self-associate with. At a larger scale, of course BMW and Porsche are in competition with each other for slices of the luxury pie, but the decision matrix for a buyer is nowhere near as simple as you portray. We need to add some marketing /positioning analysis and some social theory to your wholly microeconomic analysis to get a realistic picture, IMHO.

    (2) The belief that status seeking is the pursuit of a relative few is — to put it mildly — not borne out by observation, in sociology or by anthropologists. ALL of us, at some level or another, within some group or another, work to position ourselves in terms of status, access, and power in social groups (multiple groups, actually). Some of this is conscious (and here I can agree with you that some people are less interested in conscious manipulation of their own status than others), and much is “subconscious” (i use that term advisedly since I don’t mean it in a Freudian sense). Status isn’t just signalled by big flashy expensive purchases — clothing styles, the type of cell phone you carry, the idioms you use in everyday language, whether you use a Mac, a typical PC, or a custom-modded gamer box — all of these things (and more) carry information about what types of social groups you fit within, what status you may carry within these groups, etc. Much of this isn’t even done consciously (in the sense of a priori reasoning about it) by the individuals that do it.

    One of the reasons why signalling theory is such a powerful framework for analyzing strategic social interaction is that we know of no society or social grouping in which strategic interaction and signalling aren’t potentially important factors in explaining what’s going on. “Expensive” isn’t required — that variable only entered because of our hypotheticals.

    (3) I certainly agree that your scenario is *possible* — that “it only takes one rich and charitable individual to feed/clothe/house the whole of humanity, a situation that seems likely given the propensity of empathy among a percentage of the population.” What I’m questioning is the likelihood that things would actually work that way, given the results of experimental economics research that suggests that economic empathy is not typically unconditional among Americans (or other studied populations). Instead, our empathy is overwhelmingly (given the experimental data) structured as reciprocity — we tend to have expectations, strong or weak, of those to whom we give freely. And I see nothing in your scenario or Brandon’s that acknowledges this — both of you simply assume that unconditional altruism automatically kicks in with the death of scarcity, and have given no arguments to demonstrate that this might be true. I’ve been trying to call into question that assumption, and instead of giving *reasons* why the assumption is correct, all I’m seeing out of our discussion is reassertion of the assumption. I’d be interested to hear an argument for why our normal mix of strong reciprocity & situational self-interest would flip to unconditional altruism given a non-scarcity economy.

    Is it simply that you believe that the choice about altruism is based on marginal cost — that if the marginal cost of giving is low enough, nobody would choose to do anything but give freely? This, again, would seem to require that we also lose our preferences for reciprocation, or for giving to those who “deserve” it, or would work hard to make good use of the gift.

  8. LoneSnark,

    “I doubt anything magical happens if we can abolish scarcity where human societies will happily support massive groups of free-riders, just through “pure charity””
    As I pointed out above your point here is misplaced. “Pure Charity” as the original author mentioned is not useful at all. In a society that is ridiculously productive unemployment will no longer exist because of the reasons I gave above. You said my point was bunk because prices will rise to gobble up the wealth. I then responded that few prices are determined by ones ability to pay and you are confusing greater wealth with inflation. To this you appear to be saying that all people are vein and will pay whatever it takes for certain luxuries.

    To this I must again protest, of course. People may derive social standing by owning a BMW M3, but that doesn’t mean the price is artificially inflated. BMW may be claiming a greater margin than non-luxury car manufacturers, but this is largely eaten up by reduced volume of production. I am pretty sure that Toyota, the car manufacturer of the little car, is earning more annual profits than BMW.

    This is not because you are wrong, people do buy BMW’s for status. But there was no rule that people should love BMW’s just because they are expensive. Anyone can take a regular Toyota and slap a million dollar price tag on it, doesn’t mean someone will buy it. BMW is in competition with other luxury car manufacturers, just like Toyota is in competition with other mid-range manufacturers. If a Porsche is cheaper and more luxurious than a BMW then people will start using Porsche’s as a status symbol.

    That said, the average person has no interest in such status symbols. My friends have moderate but steady incomes, they could buy a Porsche on credit but have no interest in doing so, they would rather take more vacations and retire early. That some members of society will always seek status symbols is not a chain around the necks of all individuals, everyone else will work a few years as a teenager and retire. Those that wish to fight for status symbols will keep working to afford them.

    Back to the topic at hand: The original author was speaking to a system of infinite productive capacity where regardless of how rich everyone is (we all have trillions of dollars in the bank) a single penny will feed/clothe/house/entertain someone their entire life (infinity works this way). It is only in this system that jobs cannot be had, at all, therefore charity is necessary. Of course, out of your trillions of dollars you only need to donate a nickle such that someone else lives like Bill Gates their entire life. As such, it only takes one rich and charitable individual to feed/clothe/house the whole of humanity, a situation that seems likely given the propensity of empathy among a percentage of the population.

    My scenario was a system of large productive capacity where some must keep working, the only question is who and when. In this scenario the whole of humanity is bidding for a few jobs with rediculously high wages and stable prices. In this scenario too charity could work wonders but it is unnecessary because either A) workers keep spending their higher wages, increasing demand for goods and thus labor, or B) workers keep saving their higher wages to retire ever earlier. In either case unemployment in the long-run should be low.

  9. Mark,

    LoneSnark…I get the argument for why paper clips are priced in that manner, but what sets the price of, say, a new BMW M3? Partially, yes, it’s the cost of production and parts and destination shipping, but it’s also partially set by pure marketing considerations: the desire to position the product at the top of a segment of their product line, as a “premium” product, etc.

    Another example is the pricing of software. I’ve worked for both consumer and enterprise software companies. Programmers who work in each realm are equally expensive, as are testers, etc. So in terms of cost of production, there isn’t a massive difference, certainly nothing like the difference in unit cost to the “customer” in the two realms. The pricing decisions (and I’ve been involved in a number of such decisions) are driven by (a) anticipated volume of customers, (b) market comparables, (c) minor adjustments due to “positioning” — i.e., “premium,” “entry-level,” etc. COGS, in any classical sense, is tracked by the CFO, but rarely is an important factor in pricing intangibles like software.

    My point, of course, is that some pricing is related to costs (as in your example), particularly in those products and markets with low differentiation and mature channels. Other products are priced based on what the market “will bear” and with less, or even no, direct relationship to production costs.

    To refine my earlier point, I think your hypothetical is valid in those situations where the bulk of prices encountered are set by actual production and raw materials costs (as you suggested in the paper clip example). I think your hypothetical isn’t valid in those situations where a substantial fraction of pricing decisions incorporate factors like I mentioned in the BMW and software examples — in such situations the average “wealth” of customers will begin to have an effect on pricing decisions and lead to price inflation.

    Wealth and spending also serve social “signalling” functions, letting others know about social position, how “up to date” or “plugged in” to innovation a particular individual is, or as an indicator of unconditional generosity or conditional reciprocity as opposed to “selfishness.” In fact, there’s a set of mathematical models in evolutionary theory & game theory concerned with the circumstances under which such “signals” can be treated as “honest” indicators of some individual quality — worthiness as a mate, etc. In many situations described by such models, individuals even seek out opportunities to “outdo” others in spending significant energy (or wealth) in order to create specific social “signals” or effects perceivable by peers or possible mates.

    Some products — principally highly expensive, actually (or artificially) rare items — are tailor-made for such signalling displays. (The BMW M3 discussion for example). In the hypothetical you discuss, if *everyone* could afford virtually all items, there is no social signalling value in purchasing, owning, and displaying such items. We might expect, in such situations, demand from customers for items which are (possibly artificially) “rare” in order to make some things “costly” (again artificially), and restore the value of such items as signalling media. I know that’s not orthodox microeconomic theory, but it *is* orthodox evolutionary game theory (see the work of Zahavi, Grafen, Bergstrom & Lachmann on costly signalling).

    An interesting example of just such an artificial “signalling” driven economy, post-scarcity, is described by the science-fiction author Ken MacLeod in “Newton’s Wake” — which I highly recommend. He posits a hypothetical situation in which “cornucopia machines” are able to replicate nearly any common item, and thus abolish scarcity. As a hypothetical response, he describes how the social functions of economic signalling and differentiation are transferred to “original art” works, which have intrinsic scarcity simply through uniqueness, and thus serve the same social roles that purely “high-priced” objects serve in our scarcity economy. (This isn’t really the main point of the plot, I’m focusing merely on this detail as an example of someone who’s described how inequality might survive scarcity for purely social reasons. I recommend the book highly for its actual plot as well. :)

    In summary, I suggest that orthodox microeconomic theory doesn’t tell the whole story on how prices get set for a variety of products, and that it’s not all about scarcity, material & production costs, etc. And thus it’s not at all a foregone conclusion that “merely” eliminating finite supply for some things at all changes the social dynamics involved in our economic exchanges. Many of those patterns of exchange serve more than just pure economic purposes – they serve social purposes, and I haven’t seen an argument which describes exactly how one expects those social purposes to magically become irrelevant or to change just because we abolish scarcity.

    And that comes back to my original point — I doubt anything magical happens if we can abolish scarcity where human societies will happily support massive groups of free-riders, just through “pure charity” (in the terms used by Brandon originally). There’s simply no warrant for thinking that’s the case.

    What we *do* know is that abolishing scarcity will solve some problems — perhaps basic subsistence issues, for example, but that human social differentiation, signalling of various kinds of status, and the preference for reciprocity will likely still be factors post-scarcity in how our political economy works. Though a hypothetical example, MacLeod’s picture of such an economy is interesting because it does point out that scarcity is not the sole root of why some people feel privileged and some left behind in a particular economy — we should expect inequality to remain even if scarcity is not a factor, and thus the political dimension of economic beliefs and decisions will likely also remain even in a post-scarcity economy.

  10. LoneSnark,

    “not because the cost of production would rise, but because producers *could* ask for higher prices, and thus higher margins, on goods produced, with knowledge that people could pay given higher wages”
    I don’t know where you got the idea that prices are set by people’s ability to pay, but it is just not true in the absense of finite supply. Manufacturers today would love to ask for higher prices, in most cases I assure you that you could pay. Paper clips do not cost a penny a piece because the average office worker could not afford to pay two cents but because they cost just under a penny to produce.

    Of course, I said “absense of finite supply” for a reason. As long as we do not run out of iron ore paper clips will be priced near production costs because we can always make more until the Earth is one big pile of paper-clips. However, land is finite and I would expect the price to increase as productivity increased because people can only consume so many paper-clips, eventually they’ll want land.

  11. Mark,

    Hmmm….it strikes me that the three factors above outline a nice little phase space for doing an agent-based model to explore this. Might be a good project.

  12. Mark,

    OK. But LoneSnark’s scenario depends upon wages to rise along with productivity but no inflation — the general price level stays steady, or at the very least doesn’t rise at a comparable rate to wages & productivity.

    But we have no reason to suspect that price levels wouldn’t rise — not because the cost of production would rise, but because producers *could* ask for higher prices, and thus higher margins, on goods produced, with knowledge that people could pay given higher wages.

    So basically the outcome you think will happen in our combined thought experiments (i.e., if productivity drastically rises and/or scarcity go away) depends upon a number of things:

    (1) How one believes price levels “work” in terms of the factors that affect the average market price of goods.

    (2) Whether one believes that social preferences will continue to favor strong reciprocation regardless of scarcity or productivity.

    (3) Whether one believes that Hayek’s point about planned distribution applies only in conditions of scarcity or whether his point is generalizable to all planning, even without scarcity.

  13. LoneSnark,

    What if we thought about it another way. What would you do if someone gave you a billion dollars? Would you retire? Would you at least cut back on the number of hours you work?

    Because that is kind of what is happening here. If mankind suddenly becomes 1000 times more productive thanks to robots then the ultimate result will be to increases wages by 1000 times (you must accept that wages are linked to productivity). So, if the average wage is $60k today, it would become $60 million a year for those with jobs (working 40 hours a week). It strikes me as silly to keep working 40 hours a week when you are getting paid almost $30k an hour.

    Therefore, the world will look a lot like this: the average person grows up, gets out of school, and goes to work for two years, working 20 hours a week. After that period they will have accumulated $60 million in the bank and then retired and lived the rest of their life on the priciple, potentially passing whats left to their children.

    All in all, employment would be very low, the average wage earner only works two years in their lifetime. However, unemployment will be unheard of because businesses will find it impossible to stop people from quitting to live off past earnings.

  14. Mark,

    Well, the fact that unemployment levels have stayed approximately the same isn’t entirely due to individual choice and motivations. Some of it comes from concerted efforts on the part of the Fed and parts of the government to use monetary policy to balance unemployment versus inflation rates.

    But partially, you’re right. People find work to do, especially since of course we don’t live in Brandon and Michael’s thought experiment where scarcity has been abolished.

    One interesting question is whether people find replacement jobs that are “as good” or better than the ones lost to outsourcing. We’ve all seen anecdotal evidence — stories, essentially — about high-wage union manufacturing jobs lost and being replaced with low-wage low-benefit service industry jobs. This, in essence, is part of what is meant by the somewhat euphemistic term “underemployment.”

    And of course, in my original post I’m arguing exactly that we *should* give the invisible hand credit — that the invisible hand will, in fact, continue operating even in conditions where scarcity has been abolished. Brandon argues otherwise — that in conditions without scarcity, markets aren’t necessary and we’ll flip back to a gift economy (i.e., “pure charity” for the have-nots).

    The point where we seem to differ is that Brandon believes that scarcity is the driver for what we think of as “market” behavior and the invisible hand. I think that scarcity is correlated with market behavior but not causal of such behavior — that culturally learned social preferences about strategic interactions are the cause of market behavior in many societies. And as such, I believe that the gift/charity economy Brandon speaks of — whether in the presence of scarcity or not — is unrealistic.

    If we believe that the action of the invisible hand occasionally needs a nudge in the right direction (which is what progressives and liberals have been saying since FDR), then we have to figure out ways to do so that don’t run counter to how the invisible hand really works, and counter to individual motivations and preferences.

  15. David Airth,

    Interesting though[t] experiment .

  16. David Airth,

    Interesting though experiment.

    I remember Time magazine having a cover story about this same subject 40 years ago. The article talked about robots taking away manufacturing and other jobs. Robotics have taken over in some areas and a lot of jobs have been outsourced because of globalization. However, in the U.S. the employment levels have remained much the same. This tells me that people will always create something to sell to others, to stay employed and busy.

    Paul Krugman has an interesting article in NYT , “The New York Paradox”. – “In spite of high costs, New York City’s economy is thriving.” I think his article deals with this subject and explains how we do adapt and reinvent ourselves. Perhaps we should give the “invisible hand” more credit.

    Unfortunately, there will always be an unemployable class with us. A lot of that has to do with social attitude and policy.

  17. Mark Madsen,

    Thanks for commenting. Of course, as in my original post, I disagree with several assumptions you appear to be making. While I think it’s empirically fine to say that folks with limited wealth have tradeoffs about how to deploy those resources, your statement about those with “unlimited wealth” is just an assumption — since we have almost no examples, there isn’t a lot of evidence about precisely how people (in our society, in any society) change their behavior in the absence of resource constraints.

    Or is there? By contemporary standards, both Warren Buffett and Bill Gates are each in possession of nearly unlimited wealth, yet each is quite selective about how they deploy it in charitable causes. In particular, both Buffett and Gates are quite public about their concerns about the efficient management of their charitable gifts (which individually and collectively are massive).

    Of course, two examples does not a rule make.

    Another assumption I question is your statement that “the non-productive can tell them, and they’ll have no reason to refuse.” On what basis do you assume that things would really work that way?

    In contrast, my original post assumes that people will continue to turn existing social preferences into behavior, regardless of scarcity or abundance. Game-theoretic experiments seem to bear out the point that most people are neither unconditionally miserly nor unconditionally generous, but instead respond deeply to reputation, measures of “fairness”, and the reciprocity of transactions. These same experiments show remarkable uniformity across populations with experience in complex societies and economies, and across a wide spectrum of wealth levels.

    Neither of us really can project what will happen in the absence of scarcity with any certainty. My point is merely that we should attempt any such projections with assumptions that are borne out empirically in social populations today, rather than assumptions for which there is no empirical evidence at all.

  18. The sceniaro you quoted is one in which scarcity has been eradicated completely. I don’t expect this to happen anytime soon, but if and when it does, all prior experience goes out the window. When people work for their wealth, and have only so much of it, they’re naturally inclined to be selective about what they do with it. But those who have unlimited wealth derived from minimal effort aren’t constrained in the same ways, and we can’t expect them to behave the same way.

    Nor does it matter how efficiently they give, because efficiently really only matters in the context of scarcity. Besides, they don’t need to guess what the non-productive need, because the non-productive can tell them, and they’ll have no reason to refuse.

    That was just an extreme hypothetical, though. I think scarcity will persist for many generations to come, if not indefinitely, so there will probably always be gainful employment to be had.